Political Science

The author is Joe Zhang and the subtitle is Is China’s State Capitalism Doomed?  Here is the summary of his conclusions:

1. The state sector remains the dominant part of the Chinese economy.

2. In the past decade, China has erased most (if not all) of the liberalization of the previous two decades.  As a result, the state sector has become more dominant than it was a decade ago.

3. The state sector enjoys widespread public support in China, contrary to perceptions in the West.  there are political, social and cultural reasons for this “strange” situation.

4. The state sector and SOEs are constantly adapting to the public demand for transparency and efficiency.  As a whole, they do not necessarily underperform the private sector.  Indeed, due to systematic discrimination against the private sector, there is evidence to the contrary: the state sector has had a better financial track record in the past three decades.  Indeed, it is not fair to make comparisons given the unleveled playing field.

5. The many challenges China faces today need a robust and well-funded state sector.  At least that is, in my judgment, what the Chinese government and most members of the public think.  These challenges include social inequality, overpopulation, environmental damage, and the depletion of global resources.

I do not agree with every claim in this book, especially the normative ones, but this is one of the better places to go for a look at how the Chinese economy actually works.  Or doesn’t, as the case may be.

Could Scotland just borrow more? I am all for borrowing to cover temporary reductions in income, due to recessions for example, which is why I have been so critical of current austerity. However, as the IFS show, North Sea oil income is falling long term, so this is not a temporary problem. Now it could be that the gap will be covered in the longer term by the kind of increases in productivity and labour supply that the Scottish government assume. Governments that try to borrow today in the hope of a more optimistic future are not behaving very responsibly. However it seems unlikely that Scotland would be able to behave irresponsibly, whatever the currency regime. They would either be stopped by fiscal rules imposed by the remaining UK, or markets that did not share the SNP’s optimism about longer term growth. So this means, over the next five or ten years, either additional spending cuts (to those already planned by the UK government), or (I hope more realistically) tax increases.

There is more here, more Keynesian than I would present my own version of some of those those arguments, but in any case he makes many good points.

There is a new research paper by David E. Broockman and Daniel M. Butler (pdf), the abstract is this:

Politicians have been depicted as, alternatively, strongly constrained by public opinion, able to shape public opinion if they persuasively appeal to citizens’ values, or relatively unconstrained by public opinion and able to shape it merely by announcing their positions. We conduct unique field experiments in cooperation with legislators to explore how constituents react when legislators take positions they oppose. For the experiments, state legislators sent their constituents official communications with randomly assigned content. In some letters, the representatives took positions on salient issues these constituents opposed, sometimes supported by extensive arguments but sometimes minimally justified. Results from an ostensibly unrelated telephone survey show that citizens often adopted their representatives’ issue positions even when representatives offered little justification. Moreover, citizens did not evaluate their representatives more negatively when representatives took positions citizens opposed. These findings suggest politicians can enjoy broad latitude to shape public opinion.

I suppose Alex Salmond is one current leader who understands this, Putin is another.

For the pointer I thank the excellent Samir Varma, who also cites coverage from Wonkblog.

PredictWise and Betfair both say 28.4%.   Last I checked, that is.

Hat tip goes to David Rothschild.

It is interesting throughout, here is just one bit:

SPIEGEL: What did people talk about?

W.: People weren’t enthused about the leadership. We of course knew and everybody almost felt that it couldn’t end well, that it couldn’t been good when trains were being brought here full of people who were then getting killed. We all had that feeling. But, I mean, when you’re a soldier …

[Commentary] In the personnel files of camp staff members, there are official declarations stating, “I may not cause bodily harm or death to opponents of the state (prisoners).” It also states, “I am aware and I have been informed today that I will be punished by death if I misappropriate Jewish property of any kind.” The SS team at Auschwitz — a camp where the indiscriminate torture, robbing and murder of people was part of everyday life — were required to pledge in advance to do precisely the opposite.

One could view forms like that as a special form of cynicism. Or one could see it as a pseudo-legal facade aimed at covering up the Holocaust. One provision called for “absolute secrecy” to be maintained. In practice, it had no meaning.

The full interview is here.

Noahpinion writes:

But if you have one big, high-profile redistribution program, you can get enough popular support to overcome the concentrated opposition of the rich people footing the bill. As an example, look at the minimum wage, which gets big popular support. The Democrats can go back to the minimum wage again and again as a populist issue.

But that’s not true for the whole array of redistribution programs we currently have. If the Democrats want to increase the strength of the safety net as a whole, they have to mount a populist campaign for each one of its components. That’s hard to do. So a lot of the components of the safety net get left behind, or killed by Republicans when no one is looking.

Such a fate would never befall a Basic Income. It would be in the spotlight all the time.

In fact, by endorsing Basic Income, libertarians are walking right into a trap. Anti-redistributionists’ great fear has always been that the masses will use the power of majority rule to simply vote themselves more money. As things stand, the fragmentation of our redistribution programs makes it easier for the anti-redistributionists to punch holes in the safety net. If the fragmented system were replaced with one universal, high-profile program, the result would be a huge political gift to redistributionists.

My view is not the same.  I say we have so many small, distributed anti-poverty initiatives because no one of them was ever so popular, for better or worse.  That is also why we don’t have a Basic Income.

But let’s say a historical accident swept Basic Income proponents into power for a term and they passed that legislation.  Over time those income transfers would prove larger, more visible, and they would at least appear superficially more anti-work than the public stomach for them.  I predict they would be restricted along a number of possible dimensions, starting with (partial) work requirements for the able-bodied.

Under most plausible assumptions about the Basic Income level, most people would not be recipients, nor would they expect to be potential net gainers from the program.   And in general voters put much more importance on common sense notions of “desert” than do economists.  So I think the “why send money to people who aren’t working?” intuition will crowd out the “I want to think of myself as someone who helps other people” feeling.

So, unlike Noah, I don’t think the political future of a Basic Income would be especially strong.

The architect of the present era of globalisation is no longer willing to be its guarantor. The US does not see a vital national interest in upholding an order that redistributes power to rivals. Much as they might cavil at this, China, India and the rest are unwilling to step up as guardians of multilateralism. Without a champion, globalisation cannot but fall into disrepair.

And yes a lot of the news is bad:

Then came the crash. Finance has been renationalised. Banks have retreated in the face of new regulatory controls. European financial integration has gone into reverse. Global capital flows are still only about half their pre-crisis peak.

As for the digitalised world, the idea that everyone, everywhere should have access to the same information has fallen foul of authoritarian politics and concerns about privacy. China, Russia, Turkey and others have thrown roadblocks across the digital highway to stifle dissent. Europeans want to protect themselves from US intelligence agencies and the monopoly capitalism of the digital giants The web is heading for Balkanisation.

The open trading system is fragmenting. The collapse of the Doha round spoke to the demise of global free-trade agreements. The advanced economies are looking instead to regional coalitions and deals – the Trans-Pacific Partnership and the Transatlantic Trade and Investment Pact. The emerging economies are building south-south relationships. Frustrated by a failure to rebalance the International Monetary Fund, the Brics nations are setting up their own financial institutions.

That is from Philip Stephens at the FT.

Well, “endorsed” isn’t exactly the right word, but I did say “simpatizante.”  Here are my views:

1. I disagree with most of his economic policy, for reasons you can find stated in Adam Smith and the other classical economists.

2. Governments work very hard to stay in power.

3. In a weighted average of public opinion sense, I think of Bolivia as about 60-70% “indigenous,” one way or another.

4. If a Bolivian government is not strongly connected to the country’s indigenous population, that government cannot have a strong base.  Yet it will still work hard to stay in power (#2), which will mean it will resort to oppressions and distortions, with high long-run costs.  Bolivian history has seen an especially large number of coups and attempted coups, illustrating this weakness of the power base, which you can think of as the major problem in historical Bolivian public choice.  Think of Mancur Olson on permanent vs. temporary bandits, where most of the past bandits have been temporary, and thus Bolivian governance has been of extremely low quality, even relative to its region.

5. The government of Evo Morales is quite popular and pretty stable.  It has a strong and enduring power base, partly because of its specific policies and partly for symbolic reasons, such as its strong and explicit attachment to indigenous culture and “cosmovisions,” a notion newly embedded in the nation’s constitution.

6. The stability gains from #5 — the permanency of the bandit so to speak — exceed the costs from #1.

7. A democratic Bolivia will have “an indigenous government” sooner or later, better sooner.  Let’s hope they learn some better economic policy.  Something like the Morales government was in any case a necessary step, again without denying #1.

8. Bolivia is too decentralized for the Morales government to collapse into true dictatorship and Chavismo of Venezuela.  That said, I would feel better if it were assured that the Morales government were to be limited in term.

9. See also my reasons why I am optimistic about Bolivia, including their fiscal prudence, supported by Morales I might add.

I made this argument to an audience of elite Bolivians and elite Bolivian students.  Some of them hated it, some of them really liked it.  A speaker should usually try to shake up his or her listeners in some manner.

Chinese authorities in the restive western region of Xinjiang have begun offering large cash incentives for interracial marriages in the latest attempt to quell growing unrest among the mainly Muslim Uighur ethnic group that inhabit the region.

The policy, celebrated by local Communist party officials as advancing the “great cause of assimilation” and “ethnic unity”, offers couples entering into mixed marriages an annual bonus of Rmb10,000 ($1,600), equivalent to 135 per cent of average annual rural incomes.

Uighurs, Mongolians and other ethnic minorities who marry people from the dominant Han race, which makes up more than 90 per cent of China’s 1.36bn population, will also be eligible for a broad range of medical, schooling and housing benefits.

There is more here, via Fabrizo Goria.

1. Bolivia became a semi-stable democracy in the early 1980s and it has stayed that way.

2. For all the rhetoric to the contrary, the current regime is a mix of 1990s-era market-oriented reforms and Evo Morales.  Probably you like one of these, though perhaps not both.

3. Many more Bolivian children go to school than before, and the incidence of malnutrition has been plummeting, with longer-run benefits for IQ.  You will read many fabricated or non-causally-backed claims about the connection between inequality and growth, but for Bolivia I believe these arguments.

4. Bolivia has done so many things wrong in the past, there is a lot of low-hanging fruit through purely internal improvements.  For instance the country is a fantastic tourist destination, but would not at this moment be experienced that way by mainstream American tourists, due to language, hotel, and infrastructure shortcomings.  Eventually those problems can be and will be solved.  Eventually.

5. Bolivia does not have much export exposure to China, and does not face much geopolitical risk.

6. Of all commodities, hydrocarbons may be relatively protected in price through the forthcoming global turmoil, because the Middle East implosion will make Bolivia’s current main resource more valuable.

7. Bolivia’s fiscal situation is surprisingly sound.

The three main reasons to be pessimistic about Bolivia are:

1. Most of their economic policy is quite bad, especially when it concerns the nationalization of foreign direct investment.  The FDI future of Bolivia will be extremely unfavorable.  The rhetoric and indeed the behavior of the government sometimes is like a villain from an Ayn Rand novel.

2. Their main trading partner is Brazil, a country which will have gone from eight percent growth to near-zero growth in but a few years time.  Argentina is either the number two or number three trade partner, along with the U.S., depending on the year in question.

3. Bolivia hasn’t done that well in the past.

Of those three reasons, #1 probably matters a bit less than you might think, and #3 a bit more.

It is much debated in Bolivia whether corruption is going up or down.  I believe it is going up, but partially for good reasons.  For instance the construction sector is doing well, and construction tends to be corrupt in many countries, for reasons intrinsic to the activity itself (e.g., lots of big contracts, easy to claim invisible expenses, etc.).  That means higher corruption but also a better corruption than the penny ante bribes of a shrinking economy.

Right now Bolivia is growing at a rate of above six percent.

By Lilia Shevtsova, this is the best essay I have read on Russia, Ukraine, and Putin.  It is difficult to excerpt, but here is one short bit:

Having flipped the global chessboard with his annexation of the Crimea and an undeclared war against Ukraine, Putin effectively ended the most recent period of interregnum and inaugurated a new era in global politics. However, no one yet knows what this era will bring. The global community is still reeling in shock, when it isn’t trying to pretend that nothing extraordinary has in fact occurred. This denial of the fact that the Kremlin has dealt a blow to conventional ideas, stable geopolitical constructs, and (supposedly) successful policies proceeds from the natural instinct for self-preservation. It is also quite natural that the political forces that have grown accustomed to the status quo will try to look to the past for answers to new challenges—this is precisely what those who were unprepared for a challenge always do. It was easy enough to predict that many politicians and political analysts would explain what Putin has done to the global order by using Cold War analogies. Drawing these historical parallels is potentially useful in only one respect: if they help us to see what is truly new about the current situation, and the scale of the risks involved.

Read the whole thing.

It seems to be economic policy orientation toward Europe or Russia, and not either language or ethnicity.  Here is a new paper by Timothy Frye:

Language, ethnicity, and policy orientation toward Europe are key cleavages in Ukrainian politics, but there is much debate about their relative importance. To isolate the impact of candidate ethnicity, candidate native language, and candidate policy orientation on a hypothetical vote choice, I conducted a survey experiment of 1000 residents of Ukraine in June 2014 that manipulated three features of a fictional candidate running for parliament: 1) ethnicity as revealed by either a Russian or Ukrainian name 2) native language of Russian or Ukrainian and 3) support for closer economic ties with Russia or with Europe. The results reveal little difference in the average response to these 8 fictitious candidates despite the candidate’s different ethnicities, native language, and economic policy orientations. This seeming homogeneity masks vast differences in the responses of self-reported native speakers of Russian and Ukrainian. Analyzing the responses among Ukrainian and among Russian speakers yields considerable differences in the responses to the different candidates. Perhaps most striking is that among both native speakers of Russian and native speakers of Ukrainian a candidate’s economic policy orientation toward Europe or Russia appears to be a more important determinant of vote choice than a candidate’s language or ethnicity. That policy retains its importance for voters despite the intense politicization of both ethnicity and language and ongoing violence in eastern Ukraine suggests that vote choice in Ukraine has not been reduced to an ethnic or linguistic census.

Hat tip goes to www.bookforum.com.

Big Sugar

by on August 27, 2014 at 7:09 am in Economics, Food and Drink, Political Science | Permalink

From Bloomberg:

Because of a plunge in U.S. sugar prices amid a hefty crop of sugar beets and cane, the Agriculture Department estimates that it may have to buy 400,000 tons of sugar from processors who might default on $862 million in government loans. Sugar producers have the option of repaying the loans either with cash or with their harvests if prices fall below a certain level.

…The sugar, by law, would be sold to ethanol refiners, who would pay 10 cents a pound less than the government paid — an inducement needed to get the ethanol industry to use the sugar. Aside from the ridiculousness of piling one ill-advised subsidy atop another, this would produce a loss of $80 million for the U.S. Treasury. Some industry analysts estimate the government may have to buy as much as 800,000 tons of sugar to restore balance to U.S. stockpiles, potentially doubling the loss.

David M. Levy and Sandra J. Peart have unearthed some very valuable, hitherto undiscovered material in the history of economic and political thought, as well as the history of American philanthropy.  I have followed this paper through several drafts, with great enthusiasm, and am pleased to report it is now on-line.  The abstract is here:

In 1960 the Thomas Jefferson Center [TJC] of the University of Virginia applied for a “massive” grant from the Ford Foundation. Although James Buchanan, Warren Nutter and Ronald Coase had all received grants from Ford, Ford turned down their proposal because of the Center’s unified “point of view.” We report on correspondence and private discussions of the events. Following the submission of their proposal, Buchanan, Nutter and then President of UVA, Edgar Shannon met with representatives of the Ford Foundation, Tom Carroll and Kermit Gordon. Buchanan concluded that the “reaction of the Ford representatives must be considered to have been almost wholly negative.” The crux of the matter, in Gordon’s assessment was the TJC reflected “a single ‘point of view’.” As the conversation unfolded, it became clear to the UVA representatives that by this the Foundation officials meant a narrow ideological perspective, one in line with Chicago-style economics. Buchanan attempted to dispel this conclusion, arguing that the program was “sufficiently broad” to “encompass wide and divergent points of view.” Coase was particularly incensed by allegation of ideological narrowness since, as he explained, he had close ties to the Fabian Society. Despite the attempts of both Coase and Buchanan to defend their proposal, Ford officials turned down the application and the TJC never fully recovered.

This is what they call “real history.”  In my version of this story, of course, the Virginia School, Coase, Buchanan, and Tullock were the good guys, as was demonstrated by their subsequent research record.

I loved the Michael Hofmann review of Stephen Parker’s Bertolt Brecht: A Literary Life in the 15 August 2014 Times Literary Supplement.  Every paragraph of that review is a gem and Hofmann calls the book perhaps the greatest literary biography he has read.  I’ve ordered my copy.

Here is one part of that review, toward the end, which caught my eye:

I’m not really sure what the case against Brecht is.  That he treated women and co-workers badly?  That he played fast and loose with the intellectual property of others, but was litigiously possessive of his own?  That he wrote no more hit shows after The Threepenny Opera?  That he failed to crack America?  That he wouldn’t denounce the Soviet Union?  That he was drab and a killjoy?  That he had it cushy after settling back in East Germany in 1949?  That he was consumed with his own importance?

Perhaps the Parker book will change my mind, but for now file under “All of the Above.”

Addendum: Here is another superb Michael Hofmann review.